Consumers Weigh In on the Digital Wallet

Last week, search colossus Google announced that Google Wallet is in the works for the fall. With Google’s digital wallet, some shoppers will be able to use their smartphones as a credit card as well as cash. Just a few days before Google’s announcement, Bank of America, Wells Fargo, and JPMorgan Chase also announced a new mobile payments service that allows people to use their checking accounts to send a

Last week, search colossus Google announced that Google Wallet is in the works for the fall. With Google’s digital wallet, some shoppers will be able to use their smartphones as a credit card as well as cash.

Just a few days before Google’s announcement, Bank of America, Wells Fargo, and JPMorgan Chase also announced a new mobile payments service that allows people to use their checking accounts to send a person money with an email address or cell phone number.

Companies are clearly gearing up for anticipated growth and adoption of mobile banking. According to our recent surveys, consumers are definitely testing the waters of mobile banking. Mobile banking is on the rise, however, consumers appear to be dipping their toes rather than jumping in to the digital wallet waters.

Mobile Banking is on the Rise

This week, Compete released the results of its Q1 2011 Smartphone Intelligence Survey. One of the noteworthy insights is that mobile banking continues its rise, with over 51% of respondents reporting using their phones for mobile banking, up from 40% in Q3 2010. Specifically, we learned that 45% of smartphone owners used their phones to view their bank account status, 20% used their phone to redeem coupons, and 12% used their phone to transfer money to another person and purchase goods at a retail point of sale.

From Early Adoption to Early Majority

When we asked consumers specifically about using near field communication technology on their phone to potentially replace credit and debit cards, the majority of consumers reported they aren’t likely to use their phone in place of their cards. What is encouraging, however, is that the level of adoption of mobile payments does seem to be moving beyond the early adoption phase.

Particularly remarkable, we learned that one quarter of consumers are likely to pay for groceries with their phone instead of a credit or debit card. In addition, approximately 1 out of 5 consumers indicated they’d be likely to pay for clothes, phone charges, and coffee with their phone instead of a card. These percentages represent a significant volume of consumers; beyond the level we’d call early adopters.

Key Obstacles to Mobile Payments Adoption

Curious about what challenges face marketers of mobile payments, we asked consumers who indicated they were not likely to use their phone for payments specifically why they were not interested.

Their reasons essentially came down to two things – simple preference and concern about security. Other responses included concern for hidden fees, concern about battery use, and preference for using cash.

Specifically, 58% responded that they preferred to only use their mobile phone for communication (calls, email, or text) while 56% indicated they were concerned with the security of using the phone for payments and 52% were concerned about security if they lost their phone. A key question for mobile payments marketers is how to address these consumer concerns to encourage adoption.

Addressing Preference and Security through Marketing

To date, the dominant messaging for mobile banking across brands has been “convenience,” as you can see in both the MasterCard ad above and the Chase ad below. Security is always addressed, but usually as a secondary point. One thing that is important to note is that until a consumer actually tries mobile banking, they’re not likely to view the untried technology as convenient (or safe, for that matter). For a large share of consumers, the web still doesn’t equate to convenience. Providing consumers with enough incentive to gain experience with the technology as well as increasing messaging about the security of mobile payments will be two key areas to address in order to encourage further adoption.

And what about consumer preference? Well, with most new technologies, time helps shape preference. And mobile banking appears to be no different. Adoption appears to be headed in the right direction on the adoption curve, which is good news. Simply stated, more time is needed before consumer preference will start to shift toward the digital wallet from the plastic one.

About Jennifer Canfield:Jennifer Johnston Canfield is a Senior Associate in Financial Services at Compete. Jennifer is responsible for providing competitive analysis to financial services clients. Before Jennifer joined the Compete team she was a social media marketing consultant. Connect with Jennifer on Twitter (@jbjcanfield) or LinkedIn (http://www.linkedin.com/in/jenniferjohnstoncanfield).